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Fixed Income

CBLO Sees 72% Rates on Cash Crunch, MSF Borrowing Goes To Rs. 1.4 Trillion

The borrowing in the Marginal Standing Facility (MSF) went to a record Rs. 1.4 trillion (1.4 lakh crores) for the weekend, on the cash crunch due to the income tax advance due date of Sep 15.

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Interestingly, Banks were open on Saturday and Sunday for the tax payment. (30% of taxes must be paid by Sep 15).

This resulted in huge overnight borrowing from the CBLO window (interbank/MF dealing window) because the window for MSF (called the LAF) was not open on Saturday. CBLO is a financing scheme, and expands to the Collateralized Borrowing and Lending Scheme.

Rates on CBLO went up to 72%! (Annualized)

To fix that situation, RBI opened a 2 day MSF window for borrowing at 10.25%, and that brought rates down. (1.17 trillion was borrowed in MSF on Friday, and another 247 billion on Saturday).

Today, CBLO rates are still at 10.4%. The spike may have been temporary, but remember that this money borrowed from MSF is actually money that’s gone to the government which will take time spending it. In the meanwhile MSF has only a little more leeway – 2% of NDTL – and can go only to Rs. 1.6 trillion.

Impact: Higher Rates? A credit crunch coming soon? Or just a temporary thing? I don’t know.

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